Increased construction demand lifted profits of rebar above HRC

SHANGHAI, Mar 19 (SMM) – Profits of construction steel rebar have again surpassed that of hot-rolled coil as consumption from construction sites accelerated its increase since mid-March. As of March 17, the profit gap has expanded to 126 yuan/mt, up from 10-30 yuan/mt in early March, with the national average prices of rebar rising over 100 yuan/mt in the month to March 17, showed a SMM survey. 

The higher profits, however, have not prompted steelmakers to shift their molten iron to produce rebar at the expense of HRC, given current greater inventory pressure of rebar and uncertainties around the strength of the price rally. 

According to SMM data, overall inventories of rebar, including stocks across steelmakers and social warehouses, were 83.1% higher year on year (on a lunar calendar basis) as of March 12, standing at 21.47 million mt, with in-plant inventories up 195.6%. These compared with a year-on-year increase of 65.37% for overall HRC inventories and a 69.76% rise for in-plant stocks of HRC. 

There remain some uncertainties around the continuity of construction demand amid the recent negative macroeconomic development. This could see near-term rebar prices pulling back after a rally.

Most steel mills planned to shift production capacity to rebar when the profit spread between rebar and HRC stabilises at 200-300 yuan/mt, SMM learned. 

SMM expects the inventory pressure of rebar could be mounting further in the short run, on the backdrop of the conclusion of maintenance at some steel plants and recovering operating rates at electric arc furnace (EAF) steelmakers.